Michael J. Daugherty & Labmd, Inc. v. Sheer

891 F.3d 386

Michael J. DAUGHERTY and LabMD, Inc., Appellees

v.Alain H. SHEER, in his individual capacity and Ruth T. Yodaiken, in her individual capacity, Appellants

Does 1–10, in their individual capacities, Appellees

No. 17-5128

United States Court of Appeals, District of Columbia Circuit.

Argued January 9, 2018

Decided June 1, 2018

Tyce R. Walters, Attorney, U.S. Department of Justice, argued the cause for appellants. With him on the briefs were Jessie K. Liu, U.S. Attorney, and Mark B. Stern, Attorney.

James W. Hawkins, Atlanta, GA, argued the cause and filed the brief for appellees.

Patrick J. Massari and Michael Pepson were on the brief for amicus curiae Cause of Action Institute in support of plaintiffs-appellees.

Before: Pillard and Wilkins, Circuit Judges, and Sentelle, Senior Circuit Judge.

Wilkins, Circuit Judge:

This case requires us to decide whether two Federal Trade Commission attorneys are immune from suit for their conduct during an enforcement action against a medical-records company after the company’s CEO publicly criticized the FTC about their investigation, where the company’s data-security practices made patient records available over public file-sharing. Because "qualified immunity protects all but the plainly incompetent or those who knowingly violate the law," Mullenix v. Luna , ––– U.S. ––––, 136 S.Ct. 305, 308, 193 L.Ed.2d 255 (2015) (internal quotation marks omitted), the answer is yes. Even if the FTC attorneys sought to retaliate for the public criticism, their actions do not violate any clearly established right absent plausible allegations that their motive was the but-for cause of the Commission’s enforcement action.

I.

LabMD, Inc. is a small medical-services company in Fulton County, Georgia, owned by Michael Daugherty.¹ LabMD maintained personal information about thousands of patients, including information covered by the Health Insurance Portability and Accountability Act of 1996 ("HIPAA").

In May 2008, data-security company Tiversa Holding Corporation notified LabMD that Tiversa located a LabMD PDF file with personal information about 9,300 patients on LimeWire, a peer-to-peer file-sharing application. Tiversa was able to access and download this file, known as the "1718 File," through its data-monitoring technologies that run a prodigious number of searches across file-sharing networks. Tiversa also informed LabMD that the 1718 File had "spread," meaning that other users searched for and downloaded the file on various peer-to-peer networks. LabMD determined that the 1718 File was on LimeWire because the application was installed on a LabMD billing computer, and the company removed LimeWire immediately. LabMD employees searched for the 1718 File on other networks, but did not find it. Plaintiffs–Appellees allege that Tiversa’s actions were a sales tactic to attempt to persuade LabMD to purchase Tiversa’s data-breach-remediation services.

Enter the FTC. On January 19, 2010, LabMD CEO Daugherty received a letter from Alain Sheer, an FTC enforcement attorney, informing LabMD that the FTC was investigating LabMD’s information-security practices, because "[a]ccording to information [they] ha[d] received, a computer file (or files) from your computer network is available to users on a peer-to-peer file sharing (‘P2P’) network." Compl. ¶ 115. According to Plaintiffs–Appellees, Sheer knew about the 1718 File only because Tiversa contacted the FTC to suggest an investigation, another Tiversa strategy for pressuring companies to retain their services.

Over the next three and a half years, FTC attorneys Sheer and Ruth Yodaiken investigated Daugherty and LabMD regarding the company’s data-security practices that allowed the 1718 File to be available on LimeWire. During this period, Daugherty publicly criticized the FTC, Sheer, and Yodaiken regarding the conduct of the investigation. On September 7, 2012, the Atlanta Business Chronicle quoted Daugherty describing the FTC’s investigation as "a fishing expedition" that was "beating up on small business." Compl. ¶ 128. An FTC paralegal downloaded the article and sent it to Sheer, Yodaiken, and others not named. Id. ¶ 129. Daugherty and LabMD allege that "[a]fter reading Daugherty’s quote, Sheer and Yodaiken ramped up their investigative efforts against Daugherty and LabMD." Id. ¶ 130. However, it is not alleged what this "ramp[ing] up" entailed. On July 19, 2013, Daugherty posted on the internet a "trailer" for his book, The Devil Inside the Beltway , which details his experience with the FTC investigation into LabMD. Three days later, Sheer informed LabMD’s attorney that the investigation team had recommended an enforcement action against LabMD to the Commission, which would make the decision about whether to bring such an action. The Commission voted unanimously to do so on August 28, 2013: the complaint against LabMD alleged that it failed to provide appropriate security for patient information, in violation of Section 5 of the Federal Trade Commission Act ("FTCA").

II.

LabMD continues to defend against the FTC enforcement action, now in federal court. LabMD also filed several cases attacking those proceedings. Each of its three lawsuits seeking to enjoin the FTC has been dismissed. See LabMD, Inc. v. FTC , No. 14-cv-810 (N.D. Ga. May 12, 2014); LabMD, Inc. v. FTC , No. 13-cv-1787 (D.D.C. Feb. 19, 2014); LabMD, Inc. v. FTC , No. 13-15267 (11th Cir. Feb. 18, 2014). This suit for damages against Sheer, Yodaiken, and another FTC attorney in their personal capacities is LabMD’s fourth offensive foray in response to the FTC’s enforcement effort.

Defendants moved to dismiss, and the District Court granted the motion with respect to all but the claim that the FTC attorneys Sheer and Yodaiken retaliated against LabMD and Daugherty based on Daugherty’s exercise of his First Amendment rights to publicly criticize the government. See Daugherty v. Sheer , 248 F.Supp.3d 272 (D.D.C. 2017). For this particular claim, the District Court framed the allegations as "claiming that Defendants increased the intensity of the investigation in 2012 and 2013, and later in 2013 elevated the matter to an enforcement proceeding following additional public criticism by Daugherty." Id. at 285. The District Court concluded that no special factors or alternative remedial scheme precluded a Bivens remedy for Plaintiffs–Appellees’ First Amendment claims and denied Defendants’ qualified-immunity defenses, reasoning that

Plaintiffs’ First Amendment rights to criticize the actions of the federal government without fear of government retaliation are as clearly established as can be, and a serious escalation of an agency’s investigation or enforcement against Plaintiffs for publicly criticizing the agency would appear to violate that clearly established constitutional right.

Id. at 290.

Sheer and Yodaiken appealed. We review de novo, and "in reviewing the denial of the motion to dismiss, we take the allegations of the complaint as true." Vila , 570 F.3d at 278. "In assessing a claim of qualified immunity, the facts must be taken ‘in the light most favorable to the party asserting the injury.’ " Corrigan v. Dist. of Columbia , 841 F.3d 1022, 1035 (D.C. Cir. 2016) (quoting Saucier v. Katz , 533 U.S. 194, 201, 121 S.Ct. 2151, 150 L.Ed.2d 272 (2001) ).

III.

"Qualified immunity depends upon the answers to two questions: (1) Did the officer’s conduct violate a constitutional or statutory right? If so, (2) was that right clearly established at the time of the violation?" Jones v. Kirchner , 835 F.3d 74, 84 (D.C. Cir. 2016). Court have discretion to answer these questions in either order. Ashcroft v. al-Kidd , 563 U.S. 731, 735, 131 S.Ct. 2074, 179 L.Ed.2d 1149 (2011). Accordingly, "courts may grant qualified immunity on the ground that a purported right was not ‘clearly established’ by prior case law, without resolving the often more difficult question whether the purported right exists at all." Reichle v. Howards , 566 U.S. 658, 664, 132 S.Ct. 2088, 182 L.Ed.2d 985 (2012).

For a right to be clearly established, "existing precedent must have placed the statutory or constitutional question beyond debate." Reichle , 566 U.S. at 664, 132 S.Ct. 2088 (quoting al-Kidd , 563 U.S. at 741, 131 S.Ct. 2074 ). This standard does not "require a case directly on point." al-Kidd , 563 U.S. at 741, 131 S.Ct. 2074. Regardless of whether a court expressly has declared certain conduct unlawful, a government official is not entitled to qualified immunity where "every ‘reasonable official would have understood that what he is doing violates th[e] right.’ " Id. (quoting Anderson v. Creighton , 483 U.S. 635, 640, 107 S.Ct. 3034, 97 L.Ed.2d 523 (1987) ). Accordingly, "we look to cases from the Supreme Court and this court, as well as to cases from other courts exhibiting a consensus view—if there is one." Bame v. Dillard , 637 F.3d 380, 384 (D.C. Cir. 2011) (citation and quotation marks omitted). The proponent of a purported right has the "burden to show that the particular right in question ... was clearly established" for qualified-immunity purposes. Dukore v. Dist. of Columbia , 799 F.3d 1137, 1145 (D.C. Cir. 2015).

In assessing whether a right is clearly established, courts must mind the Supreme Court’s admonishment "not to define clearly established law at a high level of generality." al-Kidd , 563 U.S. at 742, 131 S.Ct. 2074. This means, for instance, that courts cannot rely on "[t]he general proposition ... that an unreasonable search or seizure violates the Fourth Amendment." Id. Similarly, in the First Amendment context, "the general right to be free from retaliation for one’s speech" may be too broad a proposition, not sufficiently "particularized" to make out clearly established law. Reichle , 566 U.S. at 665, 132 S.Ct. 2088. Again, the touchstone remains whether the "contours of the right are clear to a reasonable officer." Id. (quotation marks omitted).

IV.

In their claim now on appeal, Daugherty and LabMD...